Volatility, Efficiency, and Trading: Evidence from the Japanese Stock Market

ABSTRACT

We study the joint effect of the trading mechanism and the time at which transactions take place on the behavior of stock
returns using data from Japan. The Tokyo Stock Exchange employs a periodic clearing procedure twice a day, at the opening
of both the morning and the afternoon sessions. This enables us to discern the effect of the clearing mechanism from the effect
of the overnight trading halt. While the periodic clearing at the beginning of the trading day is noisy and inefficient, the
midday clearing transaction appears to be no worse than the two closing transactions.